What are the key property drivers?

Smart property investors look at the facts, not what they hear in the newspapers and Television.  If you pay attention to that, the market is all gloom and doom.  Look instead at the facts as found by investigating the drivers of the market.

There are fundamentally five key drivers in any economy, regardless of location.  Certainly, there are others, but these five are the most important and useful for investors of all types, property included. Summed up, these property drivers are:

•    Population Growth/Loss
•    Demographics
•    Economic Factors including Yeilds
•    Supply and Demand
•    Infrastructure Changes

Let’s consider now how each is currently in play around the nation for this will give us clues about where and how to invest.

Population Growth

According to the Australian Bureau of Statistics, population growth in Australia over the ten year period from 2001-2011 was slightly better than 15%.  The majority of that growth occurred in Western Australia, Queensland, Victoria, and ACT, with each having between 15% and 24% increases in populations.  This is excellent growth and certainly accounts for the gains in property values and sales during this time, but what is expected for the future?

Also according to the ABS, the growth of the nation is projected at a solid 1 person every 1 minute and 24 seconds, accounting for births, deaths, and immigration.  What that means is that the total population should grow by about 350,000 people this year alone—that represents a lot of homes to be built and plenty of additional businesses as well.  So just according to the population driver information, the demand for both residential and commercial properties for 2013 looks very positive.

Now Demographics

There are many factors we can consider here, but most important to property investors are the ability to sell or rent properties.  Thus, much of the returns to be made can be rightfully expected in workers who come to Australia temporarily to work in mining.  These are considered resident aliens by the ABS and this represents forecasted growth of 22%.  Hence, by just one demographic factor, we again see that 2013 should be a very good year for property investors, especially those with properties near mining locations.

However, with the slump last year came a slight slowing of the economy.  According to most sources such as NAB Business Research and Insights, Australia is due to face a softening economy in 2013 as mining operations shift from primarily construction to export phases of their operations.  The projected unemployment rates are expected to be around 5-3/4% in some locations.  Thus, though population growth is anticipated to reach 22% in these areas, unemployment is expected to be less than 6%.  All this means is that there will be LESS growth, not that there will not be growth.  So the outlook remains positive—people will still need housing.  

However, at the same time this is happening, the prime rate is down, which means that the ability to pay less for properties financed is better.  Add to this that many who could buy houses are fearful of the market and choosing instead to rent; this brings us to the next key driver.

Supply and Demand

If there are more people, there is going to be greater demand.  There is no way around that.  Some have been hearing that there is a housing shortage in Australia.  Well, somewhat.  As Clancy Yeates reported in the Sydney Morning Herald on August 29, 2012, part of the projected shortage figures were the result of the ABS misreporting population figures.  Oops.  The ABS over-calculated by 300,000 persons coming up with a shortage of 228,000 homes.  If we look back at the figures provided now by the ABS reported above, (350,000 growth in population) and subtract that figure of 228,000 homes, we will find that is in fact, about a 72,000 home shortage.  Not as large as anticipated, but still a demand equation.

However, as mentioned already, many how could buy are choosing instead to rent.  This does two things to the supply/demand equation.  Firstly, those who can buy will find that prices will remain on the downside of the cost equation because buying is not as popular at the moment—a great scenario for investors.  Adding to this is that demand for rentals is up, which means that the rents you can get for those properties are higher than usual.  This means that the yields, or return on investment (ROI) is superb. So now is the time that property investors can buy low, rent high, and when the market returns to normal, sell high as well.  

As I mentioned, the market for property investors right now is great.  There are plenty of positive cash flow properties and the best part is there is plenty of room for capital growth, which is where your wealth is made.

Infrastructure

According to most sources, part of the reason there will be a downturn in the overall economy from 2012 until around 2021 is because most of the needed infrastructure will have been provided during the boom period.  Still, with a growth in overall population, there will be some demand, though not as sharp as in previous years.

So as smart property investors, how can we use this information to our advantage?

Many are going to hold to the faulty information provided by the ABS and made unwise decisions such as paying more or investing in areas where demand may not be as high.  The smart property investor will look more closely at the property drivers in specific areas to determine whether the true projected growth will outstrip supply.  The smart property investor will just keep doing what he or she has been doing all along—investing in property.  If we bear in mind that slow growth still means growth, we will continue to invest, but will simply do the due diligence we should be doing anyway.

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